Last month, The Food and Drug Administration (FDA) approved a controversial new drug to treat people with Alzheimer’s disease. But even though the FDA allowed the drug to be sold, Medicare is not required to pay for it. And yesterday, the Centers for Medicare & Medicaid Services (CMS) began a process to determine whether Medicare will establish a national coverage policy for the newly approved drug, Biogen’s Aduhelm (aducanumab), and similar Alzheimer’s drugs.

This process, known as a National Coverage Determination (NCD), is likely to take about nine months. It will result in national guidance about whether Medicare will pay for the drug and under what circumstances. Until then, decisions about reimbursement are being left to contractors in the agency’s 12 regions, a situation that could lead to chaos.

Assuming Medicare will pay

Because Biogen plans to sell the drug at a price of $56,000-a-year, this will be an enormously important decision for patients, the company, and for the financial stability of Medicare itself. About 6 million Americans have been diagnosed with Alzheimer’s disease. If only 1 million are prescribed the drug, Medicare costs could exceed $50 billion annually. Even if Medicare decides to pay, patients generally would be responsible for 20 percent plus the cost of required testing and imaging that Medicare does not cover.

Biogen appears to have set the price under the assumption that Medicare will pay since few Americans could afford to pay $56,000 annually out of pocket. An independent analysis suggests a reasonable price would be between $3,000 and $8,400.

By law, Medicare must determine whether the drug is “reasonable and necessary for the diagnosis or treatment of illness or injury….”  CMS says it will base its decision on “an assessment of the clinical evidence such as published clinical studies, professional society guidelines, and public comments.”

CMS’s options

CMS says that consumers, physicians, and others will have two opportunities to comment on the proposed determination, first before draft guidance is released in about six months and again before CMS adopts a final decision.

CMS will choose among a wide range of options. Among them: It could pay for any Medicare beneficiary. It could refuse to pay at all on the grounds that the evidence of clinical benefit is scant. It could pay for only those patients for whom the drug is most likely to be effective. Or it could pay only for as long as there is evidence that a patient is improving but stop if it appears the drug is no longer providing any benefit.

Given the enormous political pressure CMS will face from drug companies and some Alzheimer’s advocacy groups, it seems unlikely that the agency would deny coverage. And given the cost and absence of evidence that the drug benefits those with advanced disease, it appears that open-ended approval also is unlikely.

While the FDA initially imposed no limits on who could be prescribed the drug, it later decided to require a label that says the drug is appropriate only for those with early stage disease.

FDA’s controversial approval

The FDA’s approval of Aduhelm was one of its most controversial decisions in years. Two incomplete trials showed that the drug may lower the amount of material known as amyloid beta that is found in the brains of people with Alzheimer’s. However, the trials showed no strong evidence that breaking down this material results in clinical benefit for patients.

Three members of an FDA study panel resigned after the agency rejected the panel’s unanimous recommendation that the drug not be approved without additional testing. Many practicing physicians raised concerns about the approval, which put the burden on them to advise patients on whether to take the drug. The FDA’s decision currently is being investigating internally at the agency and by a congressional committee.

FDA was careful to say that Aduhelm  could have a positive effect “on a surrogate endpoint that is reasonably likely to predict a clinical benefit to patients.” In other words, FDA believes the drug shows promise in its ability to reduce the substance that could be a cause of Alzheimer’s. But it is not convinced that, even if it does, it would provide any benefit to patients.

Because that is standard Medicare must use, the ball is now in CMS’s court. Given the drug’s price and potential market, the CMS decision will be among its most far-reaching in recent history.